Lee Ainslie — Maverick Capital Ltd

Lee Ainslie: Background & bio

Lee Ainslie graduated from the University of Virginia and then received his MBA from the University of North Carolina.

Mr. Lee S. Ainslie, III serves as a Managing Partner at Maverick Capital Ltd. Previously he worked at Tiger Management, where he rose to the position of Managing Director under the watchful eye of Julian Robertson. In 1993, Lee Ainslie left Tiger Management to start Maverick Capital with $38 million at the age of 28.

Before his initiation into the Tiger ‘club,’ Lee Ainslie was employed at KPMG Peat Marwick as a Consultant for that firm’s National Director of Information Technology.

Today, alongside Maverick, Lee Ainslie is a Vice Chairman and Director of the Robin Hood Foundation. Additionally, Ainslie is a Trustee of the Episcopal High School and a Member of the Advisory Board of the University of Virginia’s Alumni Association.

Lee Ainslie: Investment philosophy

Maverick Capital has long been known as one of the world’s largest and most successful hedge funds. Like other Tiger Cub funds, Maverick follows a long/short stock picking approach to generate its returns.

The 49 members of Maverick’s investment team use a bottom-up approach to stock picking, rather than trying to time market movements.

First and foremost, Maverick tries to understand the business in question. How sustainable is growth? How sustainable are returns on capital? How intelligently is it deploying capital? The goal is to know more about the companies Maverick invests in more than any other non-insider. On average, the fund holds around five positions per investment professional, a ratio that’s lower than average for hedge funds. Maverick’s analysts all have more than 15 years experience in their industries and have developed long-term relationships with other industry insiders.

Analysts spend most of their time analyzing company management teams. Has management made sensible decisions in the past? Are they allocating capital effectively? Are they focused on empire building over shareholder returns?

Maverick’s valuation metrics vary. The most common metric used is to compare free cash flow to enterprise value, but each business is valued differently, and no one metric is used. Stocks are targeted that Maverick believes will outperform the market by 20% on an annualized basis. Maverick uses a timeframe of one to three years to realize its return.

Maverick employs some leverage with gross exposure at around 200-250%. Lee Ainslie makes the case for using this minimal amount of leverage as a means to run a more balanced portfolio. By employing a slight amount of leverage, he can run his book 150% long and 100% short leaving his ratio of longs: shorts at a less risky 1.5:1.

This approach has helped Maverick return around 12% on average every year since 1995, compared to 9.4% for the S&P 500. These returns have made Maverick one of the world’s most successful, and consistently profitable hedge funds. From 1995 to 2009 the fund returned 13% compounded return annually, although Maverick Capital lost about 30% in the financial crisis of 2008 (still a significant relative outperformance of the S&P 500).

Lee Ainslie: Quotes

“There are no ‘holds.’ Everyday you’re either willing to buy more at the current price, or, if you aren’t, you should redeploy the capital to something you believe does deserve incremental capital.”

“The odds of my adding value consistently by trying to time the market are very slim. At the time of maximum pain, you need to maintain your discipline.”